DP5614 Simulating Stock Returns Under Switching Regimes - A New Test of Market Efficiency
|Author(s):||David Meenagh, Patrick Minford, David Peel|
|Publication Date:||April 2006|
|Keyword(s):||efficient markets, rational expectations, regime switching, stock returns|
|JEL(s):||C15, C5, G14|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5614|
A model of profits switches between four regimes with fixed probabilities; the rationally expected profits stream implies the stock market value. This efficient market model is not rejected by UK post-war time-series behaviour of either profits or the FTSE index.